Glossary

A short string of letters and numbers that identifies a destination on a blockchain, much like an email address or a bank account number tells funds where to go. An address is derived from a user's public key; anyone can send assets to it, but only the holder of the matching private key can spend from it.

A scam in which an attacker sends a tiny transaction from an address that closely resembles one a victim has used before, hoping the victim will later copy the look-alike address and send funds to the attacker. It exploits the fact that people often copy addresses from their transaction history.

The free distribution of tokens to many wallet addresses, often to reward early users of a project or to bootstrap a community. Airdrops are a marketing and decentralization tactic, and have sometimes rewarded users with large windfalls.

A body of laws and procedures requiring financial businesses to detect and report attempts to disguise the origins of illegally obtained money. In crypto, AML obligations increasingly apply to exchanges and other intermediaries, sitting alongside KYC requirements (see KYC).

A type of exchange that lets people trade tokens against a pool of funds using a mathematical formula to set prices, rather than matching individual buyers and sellers. Instead of an order book, an AMM is like a self-service currency-changing machine whose exchange rate adjusts automatically as the pool's balances shift.

A trade in which two parties exchange assets, often across different blockchains, in a single all-or-nothing operation: either both sides receive their assets or neither does. This removes the need to trust a middleman to complete the exchange.

The first working cryptocurrency and blockchain, introduced in 2008 by the pseudonymous Satoshi Nakamoto as "peer-to-peer electronic cash" that needs no bank or central authority. Written with a capital "B," Bitcoin usually refers to the network and system; lowercase "bitcoin" refers to the currency unit itself.

A bundle of recently confirmed transactions, packaged together with a timestamp and a cryptographic link to the block before it. Blocks are the "pages" added one after another to the shared ledger; once filled and accepted by the network, a block becomes part of the permanent chain (see Blockchain).

A website or tool that lets anyone search and view the contents of a public blockchain: transactions, addresses, blocks, and balances. Because public blockchains are open, a block explorer turns their raw data into a human-readable, searchable window.

The new cryptocurrency created and given to whoever adds a valid new block to the chain, serving as the incentive that secures many blockchains. On Bitcoin, this reward halves roughly every four years in an event known as the "halving."

A shared, continuously growing record of transactions, copied across many computers, in which entries are grouped into blocks that are cryptographically chained together so that altering an old entry would require redoing everything after it. In plain terms, it is a tamper-evident shared notebook that no single party owns or controls.

A type of digital signature, named for the cryptographers Boneh, Lynn, and Shacham, whose distinctive property is that many separate signatures can be mathematically combined into a single compact signature that remains easy to verify. This makes it valuable for blockchains, where thousands of validators must sign off on each block efficiently (see Digital signature, Threshold signature).

A service that lets assets or information move between two separate blockchains, which otherwise cannot talk to each other directly. A bridge typically locks a token on one chain and issues a stand-in version on the other; bridges have been frequent targets of large hacks (see Interoperability).

The ability of a distributed system to keep working correctly even when some of its participants fail or actively lie. The name comes from the "Byzantine Generals Problem," a thought experiment about coordinating an action when some messengers may be traitors; solving it is central to how blockchains reach agreement without trust.

A digital form of a country's official money, issued and backed directly by its central bank. Unlike privately issued cryptocurrencies or stablecoins, a CBDC is government money in digital form, and its design raises questions about privacy, control, and the role of commercial banks.

A way of storing the private keys that control crypto assets on a device kept offline, such as a dedicated hardware device or even paper. Because it is not connected to the internet, a cold wallet is much harder for remote attackers to reach, like keeping valuables in a vault rather than a pocket (compare Hot wallet).

A cryptographic technique that lets someone lock in a value or choice and prove later that they did not change it, all without revealing the value at the time — like sealing a prediction in an envelope to be opened afterward. It provides the "binding" and "hiding" properties that underpin many privacy and fairness mechanisms.

The property that lets independent blockchain applications snap together and build on one another, because they share open standards and run on the same public infrastructure. It is often likened to "money Legos": a new service can plug directly into existing ones without asking permission.

The set of rules a blockchain network uses to agree on which transactions are valid and what the single shared history is, despite having no central authority. Proof of work and proof of stake are the two best-known examples (see those entries); the consensus mechanism is what keeps thousands of independent computers in agreement.

A digital asset that uses cryptography and a blockchain to record ownership and transfers without relying on a bank or government. Bitcoin and ether are the leading examples; the term covers a vast range of assets with very different designs and purposes.

The mathematical science of securing information so that it can be kept secret, proven authentic, or shown to be unaltered. It is the foundational toolkit of Web3, providing the digital signatures, hash functions, and key pairs that make blockchains possible (see Hash function, Digital signature, Public key).

A custodial service holds your private keys on your behalf (like a bank holding your money), so you trust it to safeguard and release your assets; a non-custodial arrangement means you alone hold your keys and control your assets directly. The trade-off is convenience and recoverability versus full personal control (see Self-custody).

A movement, active from the late 1980s, of programmers and activists who advocated the use of strong cryptography as a tool to protect individual privacy and limit state and corporate power. Many ideas behind Bitcoin and Web3 trace directly to cypherpunk writings and mailing lists.

An organization whose rules and finances are governed by software and collective member votes recorded on a blockchain, rather than by a traditional management hierarchy. In principle a DAO lets a global group pool funds and make decisions transparently; in practice, power often concentrates among large token holders (see Governance token).

A software application whose core logic runs on a blockchain through smart contracts rather than on a company's private servers. The aim is an app no single party can unilaterally shut down or alter, though most dApps still rely on conventional web interfaces and infrastructure to be usable.

A broad category of financial services — lending, borrowing, trading, earning interest — built from smart contracts on public blockchains, meant to operate without banks or brokers as intermediaries. DeFi promises open, around-the-clock access, but carries risks from software bugs, volatility, and scams.

A new kind of identifier that a person, organization, or thing can create and control directly, without a central registrar such as a government or company. A DID is a building block of self-sovereign identity, letting users prove who they are using their own keys rather than a platform's account (see Self-sovereign identity, Verifiable credential).

A cryptographic stamp that proves a message or transaction was authorized by the holder of a particular private key and was not altered afterward. Like a handwritten signature that is impossible to forge and unique to each document, it lets others verify authenticity using the matching public key.

A record of transactions or holdings that is maintained and synchronized across many computers at once, with no single master copy. A blockchain is one type of distributed ledger; the broader term also covers other designs that share data across participants.

The core challenge of digital money: because digital files can be copied, what stops someone from spending the same unit twice? Blockchains solve it by having the whole network agree on a single ordered history of transactions, so a coin already spent cannot be spent again.

A system that maps human-friendly names (such as "alice.eth") to long, unreadable blockchain addresses, much as the internet's domain name system maps "example.com" to a numeric address. It makes sending funds and identifying accounts far easier and less error-prone.

A widely adopted technical standard for creating interchangeable ("fungible") tokens on Ethereum, defining a common set of functions so that wallets and exchanges can handle any such token uniformly. Most cryptocurrencies built on Ethereum, including many stablecoins, follow this standard.

The technical standard on Ethereum for non-fungible tokens (NFTs), where each token is unique and individually distinguishable rather than interchangeable. It is the format that underlies most blockchain-based digital collectibles and art (see NFT).

A blockchain platform launched in 2015 that extends the idea of Bitcoin by allowing arbitrary programs — smart contracts — to run on it, making it a kind of global, shared computer. Its native currency is called ether (ETH), and it hosts the majority of Web3 applications.

The standardized software environment in which Ethereum's smart contracts execute, identically on every computer in the network. Because many other blockchains have adopted the EVM, it has become a common "operating system" for Web3, letting applications run across multiple chains.

Government-issued money, such as the dollar, euro, or yen, that is not backed by a physical commodity like gold but derives its value from law and public trust. The term is used in crypto discussions to distinguish traditional national money from cryptocurrencies.

A change to a blockchain's rules that causes the network's software to diverge. A soft fork is backward-compatible, so updated and non-updated participants can still coexist; a hard fork is not, and can split the chain into two separate networks (as when Ethereum split into Ethereum and Ethereum Classic).

An advanced form of encryption that allows computations to be performed directly on encrypted data, yielding an encrypted result that, once decrypted, matches what you would have gotten by working on the original. It means a service can process your information without ever seeing it — long a "holy grail" of cryptography, now slowly becoming practical.

Fungible items are interchangeable — any one unit is as good as another, like identical dollar bills or grains of the same currency; non-fungible items are unique and not interchangeable, like an original painting or a specific collectible. This distinction separates ordinary cryptocurrencies from NFTs.

The fee paid to have a transaction or smart-contract operation processed on a blockchain such as Ethereum, compensating the network for the computing work involved. Like a metered toll, more complex operations cost more gas, and fees rise when the network is congested.

The very first block of a blockchain, from which all later blocks descend. It is hard-coded when the network launches and serves as the anchor of the entire chain's history.

A token that grants its holder the right to vote on decisions about a protocol or DAO, such as changes to its rules or how its funds are used. It functions somewhat like a share that confers voting power, though usually without the legal rights of corporate stock (see DAO).

A mathematical process that takes any input — a word, a file, a whole block — and produces a fixed-length string of characters that acts as a unique digital fingerprint. The same input always yields the same fingerprint, but even a tiny change produces a completely different one, and the process cannot be run in reverse; this is what makes blockchains tamper-evident.

Software for holding crypto assets that stays connected to the internet, such as a mobile app or browser extension, making everyday transactions convenient. Because it is online, it is more exposed to hacking than an offline alternative, like cash in a wallet versus a safe (compare Cold wallet).

A standard from U.S. law, drawn from a 1946 Supreme Court case, used to decide whether an asset counts as an "investment contract" and therefore a regulated security. It asks, in essence, whether people invested money in a common enterprise expecting profits from the efforts of others; it is central to debates over which tokens are securities (see Security (legal sense)).

The property that once data is recorded on a blockchain and confirmed, it cannot practically be changed or deleted. This permanence is a key source of blockchains' trustworthiness, though it also means errors, theft, and unwanted records can be very hard to undo.

The ability of different blockchains and applications to exchange information and value with one another. Because the ecosystem is fragmented across many separate networks, interoperability — often achieved through bridges — is a major technical and commercial goal (see Bridge).

A peer-to-peer system for storing and sharing files across a distributed network, where content is found by what it is (its fingerprint) rather than where it sits. It is often used to host the actual images or data that NFTs and dApps point to, since storing large files directly on a blockchain is impractical.

The regulatory requirement that financial businesses verify the identity of their customers before serving them, to deter fraud and crime. KYC checks (often paired with AML rules) are standard on centralized crypto exchanges and sit in tension with Web3's ideals of pseudonymity (see AML, Pseudonymity).

A layer-1 is a base blockchain, such as Bitcoin or Ethereum, that settles transactions on its own; a layer-2 is a secondary network built on top of a layer-1 to handle transactions faster and more cheaply, then report results back down to the base chain for final security. The layered design is a leading strategy for scaling blockchains (see Rollup).

A record of transactions or balances — the basic accounting concept that long predates computers. Blockchains are, at heart, a new way of keeping a ledger that is shared and synchronized across many independent parties rather than held by one trusted bookkeeper.

A shared pot of two or more tokens, supplied by users, that an automated market maker draws on to let others trade. Those who deposit into the pool (liquidity providers) earn a share of trading fees in return, while taking on certain risks such as "impermanent loss" (see AMM, Yield farming).

The live, fully operational version of a blockchain, where real transactions with real value take place. It is distinguished from a "testnet," a parallel network used for experimentation and development where the tokens have no real-world value.

A way of organizing data so that many items can be summarized by a single fingerprint at the top, computed by repeatedly combining and hashing pairs of items below. This structure lets a blockchain efficiently prove that a particular transaction is included in a block without revealing or transmitting all the others.

Data that describes other data — for an NFT, for example, the name, description, and link to the artwork rather than the artwork itself. Where and how metadata is stored matters greatly, because if it lives on a fragile server the underlying asset can effectively disappear (see IPFS).

The extra profit that those who order transactions into blocks can capture by strategically including, excluding, or reordering them — for instance, by jumping ahead of a known trade. Often described as an invisible tax on users, MEV is a subtle but significant issue in how blockchains operate fairly.

A comprehensive European Union law, agreed in 2023, that establishes harmonized rules for crypto-asset issuers and service providers across member states. It is one of the world's first broad regulatory frameworks dedicated to crypto and a benchmark for policy elsewhere.

In proof-of-work blockchains, miners are participants who run powerful computers to compete at solving a hard mathematical puzzle for the right to add the next block and collect the reward. "Mining" is this energy-intensive process; it both secures the network and, on Bitcoin, releases new coins into circulation (see Proof of work).

A list of ordinary words (typically 12 or 24) that encodes the master secret behind a wallet, from which all its keys can be regenerated. It is a human-friendly backup of one's private keys; anyone who learns the phrase controls the funds, and anyone who loses it may lose access forever.

An economic view of the firm, associated with theorists such as Michael Jensen and William Meckling, that sees a company not as a single thing but as a bundle of contracts linking workers, owners, suppliers, and customers. Web3 thinkers invoke it to argue that if those contracts can be written and enforced in code, much of the traditional company may be replaced by protocols (see Transaction costs, Trustless firm).

A unique blockchain record that certifies ownership of a particular digital (or sometimes physical) item, such as an artwork, collectible, or credential. Unlike a cryptocurrency, each NFT is one-of-a-kind; importantly, owning the token is not always the same as owning copyright or the underlying file (see ERC-721, Fungible / Non-fungible).

A computer that participates in a blockchain network by keeping a copy of the ledger and helping relay and verify transactions. The more independent nodes a network has, the more decentralized and resilient it tends to be, since there is no single point of control or failure.

A service that feeds real-world information — such as prices, weather, or election results — into a blockchain, since smart contracts cannot reach outside their own network on their own. Oracles are essential for many applications but introduce a point of trust and a potential weak link known as the "oracle problem."

A property of a system that anyone can join, use, or build on without seeking approval from a gatekeeper. Public blockchains are typically permissionless, which proponents see as their defining virtue and critics note also enables fraud and illicit use (compare the permissioned, gated systems of Web 2.0).

A secret number, known only to its owner, that grants control over a blockchain address and the assets held there. It is the ultimate proof of ownership in Web3: whoever holds the private key holds the funds, which is why protecting it is paramount (see Public key, Self-custody).

A consensus mechanism in which the right to validate transactions and add blocks is granted in proportion to the amount of cryptocurrency a participant locks up as a stake, rather than to computing power. It consumes far less energy than proof of work and is the model Ethereum adopted in 2022 (see Staking, Validator).

A consensus mechanism in which participants compete to solve a computationally hard puzzle, with the winner earning the right to add the next block. It secures Bitcoin and makes tampering prohibitively expensive, but consumes large amounts of electricity (see Miner / Mining).

A shared set of rules that defines how participants in a system communicate and interact. In Web3, "protocol" often refers to the foundational rules of a blockchain or application (such as a lending protocol), much as internet protocols govern how computers exchange data.

The condition of acting under a persistent but non-real-name identity — on a blockchain, an address rather than a legal name. Public blockchain activity is pseudonymous rather than truly anonymous: transactions are openly visible and can sometimes be linked back to real identities through analysis.

A number derived from a private key that can be shared freely and is used to receive funds and to verify the owner's digital signatures. Public and private keys form a matched pair: the public one is like an account number others can see, while the private one is the secret that controls it (see Private key, Address).

A leading layer-2 scaling technique that bundles ("rolls up") many transactions off the main chain, processes them together, and posts a compact summary back to the base blockchain for security. Rollups come in two main flavors — "optimistic," which assume validity unless challenged, and "zero-knowledge," which post cryptographic proofs (see Layer-1 / Layer-2, Zero-knowledge proof).

A scam in which the creators of a crypto project suddenly abandon it and abscond with investors' funds, often after hyping the token to inflate its price. The name evokes pulling a rug out from under buyers; it is among the most common frauds in the space.

A cryptographic method that lets several parties jointly compute a result from their combined data while each keeps its own input private — for example, calculating an average salary without anyone revealing their own pay. It enables cooperation without a trusted middleman, and is widely used to safeguard keys and run private computations.

A category of investment, such as a stock or bond, that is subject to financial regulation designed to protect investors. Whether a given token is a security — typically judged by the Howey test in the U.S. — determines what laws apply to it and is one of the most consequential open questions in crypto regulation (see Howey test).

The practice of holding and controlling one's own crypto assets directly through one's own keys, rather than entrusting them to an exchange or other intermediary. It embodies the Web3 ideal of personal sovereignty over assets, captured in the phrase "not your keys, not your coins," while placing full responsibility for security on the individual (see Custodial / Non-custodial).

A model of digital identity in which individuals own and control their own identity information and credentials, deciding what to share and with whom, without depending on any central provider. It contrasts with today's norm of logging in through large platforms, and relies on tools such as decentralized identifiers and verifiable credentials (see DID, Verifiable credential).

A technique for scaling a blockchain by splitting it into smaller parallel partitions ("shards") that process transactions simultaneously, rather than forcing every node to handle everything. It aims to increase capacity, much as adding checkout lanes speeds a busy store.

A program stored on a blockchain that automatically executes its terms when predefined conditions are met, without needing an intermediary to enforce them. The classic analogy is a vending machine: insert the right input and the agreed output is delivered automatically; the term predates Ethereum and was coined by Nick Szabo in the 1990s.

A cryptocurrency designed to hold a steady value by being pegged to a reference asset, most often a national currency like the U.S. dollar. Stablecoins aim to combine crypto's speed and programmability with price stability, but they vary widely in how — and how reliably — their pegs are backed.

Locking up cryptocurrency to help secure a proof-of-stake network and, in return, earning rewards. Stakers put their funds at risk of penalty if they misbehave, which aligns their incentives with the network's honesty (see Proof of stake, Validator).

A scheme in which the power to sign is split among several parties so that any sufficient subset — say, three of five — must cooperate to produce a single valid signature, while no individual can act alone. It removes single points of failure in key management, much like a safe that requires several keys turned together (see Digital signature, BLS signature).

A unit of value or rights recorded on a blockchain, which can represent almost anything: a currency, a share of governance, access to a service, or ownership of a unique item. Tokens are the basic objects of Web3; they may be fungible (interchangeable) or non-fungible (unique) (see Tokenization).

The process of representing an asset or right — whether a currency, a piece of real estate, a bond, or an artwork — as a token on a blockchain so it can be owned and transferred digitally. Proponents argue it can make traditionally illiquid assets easier to divide, trade, and verify.

The frictions of doing business — searching, bargaining, contracting, monitoring, and enforcing agreements — that economist Ronald Coase identified as the reason firms exist: companies form when organizing activity internally is cheaper than coordinating it through open markets. Web3 argues that blockchains can lower these costs, potentially reshaping when and why organizations are needed (see Nexus of contracts, Trustless firm).

The Web3 design principle of reducing how much one must rely on the goodwill or honesty of others by having rules, cryptography, and incentives enforce correct behavior instead — the spirit captured in the phrase "less trust, more truth." It is a more precise framing than "trustless," since trust is reduced and relocated rather than truly abolished (see Trustlessness).

A one-time procedure required by some zero-knowledge systems in which secret random values are generated to create the system's public parameters and must then be destroyed; if anyone secretly keeps this "toxic waste," they could forge proofs. Newer designs avoid it or use elaborate multi-party "ceremonies" so that no single participant ever holds the secret (see zk-SNARK, zk-STARK).

The idea that an enterprise's coordination — its contracts, payments, rules, and decisions — can be embodied in transparent code on a blockchain rather than in managers and paperwork, so the organization runs as a protocol that no single party controls. A DAO is the clearest attempt at this model (see DAO, Nexus of contracts, Transaction costs).

The design goal of letting parties transact and cooperate without having to trust one another or a central authority, because the system's rules and cryptography enforce honest behavior. The term is somewhat misleading: trust is not eliminated but relocated — from institutions to code, math, and economic incentives (see Trust-minimization).

A common metric for the total worth of assets deposited in a DeFi protocol or across the sector, used as a rough gauge of adoption and scale. It should be read with caution, since the same assets can be counted in multiple places and values swing sharply with token prices.

A participant in a proof-of-stake network responsible for checking transactions and proposing or confirming new blocks, chosen based on their stake. Validators are the proof-of-stake counterpart to proof-of-work miners, earning rewards for honest work and facing penalties for misconduct (see Proof of stake, Staking).

A technique that lets one party perform a calculation and produce a cryptographic proof that it was done correctly, so others can trust the result without redoing the work themselves. It is what allows a blockchain to accept the output of heavy computation done off-chain, underpinning zero-knowledge rollups (see Zero-knowledge proof, Rollup).

A digital, cryptographically signed certificate — such as a diploma, license, or proof of age — that the holder can present and others can instantly verify as authentic, without contacting the issuer. It is a core component of self-sovereign identity, designed to give people portable, tamper-proof proof of claims about themselves (see Self-sovereign identity, DID).

Software or a device that stores the keys controlling a user's crypto assets and lets them send, receive, and interact with blockchain applications. Despite the name, a wallet does not actually hold coins — these live on the blockchain — but rather the keys that prove ownership of them (see Private key).

An older and distinct vision, associated with Tim Berners-Lee, of a web whose data is structured so that machines can understand and connect it meaningfully. It is frequently confused with blockchain-based "Web3" but refers to a different project; distinguishing the two is a deliberate contribution of this book (see Web1 / Web2 / Web3).

A shorthand history of the web: Web1 (roughly the 1990s) was "read-only," a library of static pages; Web2 (mid-2000s onward) became "read-write," dominated by interactive platforms where users create content but companies own it; Web3 proposes a "read-write-own" era built on blockchains, where users control their own identity, data, and value. The framing is influential but contested, and is the central organizing idea this book examines.

The practice of moving crypto assets between DeFi protocols to chase the highest available returns, often by providing liquidity or lending in exchange for fees and token rewards. It can generate high yields but carries substantial risks from volatility, software bugs, and unsustainable incentive schemes (see Liquidity pool).

A cryptographic method that lets one party prove a statement is true without revealing any of the underlying information — for example, proving you are over eighteen without disclosing your birth date. It underpins both privacy-preserving applications and a leading class of scaling technology known as zero-knowledge rollups (see Rollup, zk-SNARK, zk-STARK).

A security philosophy, originally from corporate IT, summed up as "never trust, always verify": no user or device is trusted by default, and every request must be authenticated and authorized regardless of where it comes from. It echoes Web3's instinct to assume nothing and verify everything, though it applies to network security rather than blockchains specifically.

A specific, widely used kind of zero-knowledge proof whose name stands for "zero-knowledge succinct non-interactive argument of knowledge." Its appeal is that the proofs are tiny and quick to verify, though many versions require a one-time trusted setup; it powers privacy coins and zero-knowledge rollups (see Zero-knowledge proof, Trusted setup, Rollup).

A newer variety of zero-knowledge proof ("scalable transparent argument of knowledge") that needs no trusted setup and is designed to resist even future quantum computers, at the cost of larger proof sizes than zk-SNARKs. The two are competing approaches to private, verifiable computation (see Zero-knowledge proof, zk-SNARK, Trusted setup).